Commodity Index Funds And Price Swings: Conditions Of Causality
AbstractThe role played by “speculators” during the 2007/08 food price spike is lively disputed. Our analysis focuses on the increasing participation of index funds in agricultural commodity futures markets before the food price spike. Our central theme is to determine if their prespike massive entry does prepare the subsequent crisis by maintaining low stock levels. We develop a theoretical model explaining the behaviour of speculators and traders on futures and cash markets. We allow index funds to inflict an informational externality on commercial traders that is supposed to induce a lower desire to hold stock. We find out that, once the production decisions of commercial traders are taken into account into the model, the increased net long position of index funds is inconsistent with lower stocks. We therefore conclude that commodity index funds are not a systematic cause of high market swings and that other relevant causes should be further studied.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by International Agricultural Trade Research Consortium in its series Proceedings Issues, 2010: Climate Change in World Agriculture: Mitigation, Adaptation, Trade and Food Security, June 2010, Stuttgart- Hohenheim, Germany with number 91283.
Date of creation: 2010
Date of revision:
Futures markets; commodity price; index funds; stocks; Food Consumption/Nutrition/Food Safety; Risk and Uncertainty;
This paper has been announced in the following NEP Reports:
You can help add them by filling out this form.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (AgEcon Search).
If references are entirely missing, you can add them using this form.